Centre on Migration, Policy and Society

Working Paper No. 38,

University of Oxford, 2006

Greasing the wheels of the flexible labour market: East European labour immigration in the UK* Martin Ruhs WP-06-38

COMPAS does not have a centre view and does not aim to present one. The views expressed in this document are only those of its independent author

1

Abstract

In May 2004, the UK Government granted workers from the new EU member states in

Central and Eastern Europe (“A8 countries”) free access to the British labour market. This

paper discusses the rationale and migration policy context of this decision and reviews the

scale and economic impacts of the subsequent inflow of East European migrants. Free access

for A8 workers was part of the Government’s Managed Migration policy, designed to expand

migration to fill vacancies in skilled and especially in low-waged occupations where employers

found it difficult to legally employ migrants before EU enlargement. The much larger-than-

expected increase in the employment of A8 workers since May 2004 has contributed to

economic growth and benefited individual employers in the UK. It has, however, also raised

new and still relatively under-researched questions about the distributional impacts and

potential social costs of large-scale immigration. I argue that without a stronger commitment

to the enforcement of labour laws and regulations, the immigration and employment of

Central and East European workers in the UK is in danger of becoming an example of the kind

of ‘unmanaged’ migration that the Government is so keen to avoid.

Keywords

labour market, East European, immigration, economic impact, A8 countries, managed

migration

Author

Martin Ruhs is a senior researcher at the ESRC Centre on Migration, Policy and Society at the

University of Oxford. martin.ruhs@compas.ox.ac.uk

*For their helpful comments, I am grateful to Sarah Spencer, Ben Rogaly, Ali Rogers and the

participants of a COMPAS work-in-progress seminar in early October 2006.

2

Contents

1 Introduction 3

2 Managed Migration and EU enlargement (2004) 4

2.1 Migration flows and major migration policies before EU enlargement 4

2.2 EU enlargement: impact on labour immigration and labour immigration policies 8

3 Economic impacts 15

3.1 Impacts on the economy and labour market 15

3.2 Impacts on public finances and public services 21

4 Current debates 24

4.1 Numbers and impacts 24

4.2 Temporary or permanent? 24

4.3 Immigration and the flexible labour market 25

4.4 Reforming migration policies toward non-EEA nationals 27

5 Conclusion 28

References 30

3

1 Introduction

Immigration is one of the most contentious and divisive issues of public policy-making in the

UK. In August 2006, the Government published the latest official figures on the scale and

composition of migration to the UK.1 This included the most recent numbers of ‘A8’ workers

from the new EU member states2 registering for employment since gaining unrestricted access

to the UK labour market in May 2004.3 The data showed a significant increase in overall

immigration, mainly as a result of the inflow of an estimated 600,000 A8 workers since May

2004. In absolute terms, the population movement since May 2004 has been the biggest single

wave of migration in British history.4 This prompted a heated debate about the scale and

impacts of immigration (which a leading newspaper described as the “hottest political issue of

our time”5), and especially about the consequences of the continuing inflow of workers from

the new EU member states.

The government has admitted its failure to predict the additional immigration that EU

enlargement in 2004 would generate - official pre-enlargement predictions suggested a net

annual addition of about 15,000 workers only - and the inadequacies of the current official

statistics to capture the actual numbers of East European migrants coming to work in the UK.

The government also continues to maintain, however, that “migrant workers from the

accession states are benefiting the UK, by filling skills and labour gaps that cannot be met from

the UK-born population.”6 This positive assessment has recently come under scrutiny, with

critics suggesting that it fails to consider the potential economic and social costs that large-

scale immigration from Eastern Europe might generate.

This paper reviews the available evidence on the scale and economic impacts of – as

well as the policy and research questions arising from - the recent immigration of East

European workers in the UK. The analysis begins with an overview of recent migration flows

to the UK, and a review of the government’s Managed Migration policies before and after EU

enlargement in 2004. This is followed by a discussion of the impacts of the immigration of A8

workers on the UK’s economy and labour market, as well as on public finances and public

services. The third part of the paper explores some of the key themes in current debates

about East European labour immigration in the UK.

1 Home Office (August 2006a) 2 The ten states joining the EU in May 2004 include the “A8” countries – Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia – plus Cyprus and Malta. 3 Home Office (August 2006b) 4 The Economist, 26 August 2006, p.25 5 ‘The Independent’, 23 August 2006, front page 6 Home Office Minister Tony McNulty cited in ‘Latest Immigration and Asylum Figures Published’, Home Office press release, 22 August 2006

4

2 Managed Migration and EU enlargement (2004)

This section discusses how the current government’s Managed Migration policies have shaped

the availability of migrant workers for employment in the UK’s economy before and after EU

enlargement in May 2004.

2.1 Migration flows and major migration policies before EU enlargement

The number of migrants coming to the UK, both from outside and within the European Union

(EU) has significantly increased since the mid 1990s.7 Total migration to the UK increased from

314,000 in 1994 to 582,000 in 2004.8 Out-migration also increased but at a lower rate – from

238,000 in 1994 to 360,000 in 2004 – thus resulting in a significant rise in net migration to the

UK.9 As shown in Figure 1, until May 2004, the increase in net migration was driven by the

immigration of non-EU nationals. Since EU enlargement in May 2004, net migration of EU

nationals has grown faster than that of non-EU nationals. Net migration rates of British

nationals have remained negative throughout the period.

Figure 1: Net-migration to the UK by major nationality group, 1995-2004 (thousands)

-150

-100

-50

0

50

100

150

200

250

300

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Non-EU

British

All nationalities

European Union (EU)

Source: Home Office (August 2005)

7 For more comprehensive overviews than given here see, for example, ESRC (2006), Salt (2005) and IPPR (2005). 8 The figures for 2004 reported in this paragraph and in Figure 3 include immigration of A10 nationals during May-December 204. 9 ESRC (2006).

5

In spring 2004, i.e. just before EU enlargement, there were 2.8 million foreign nationals

living in the UK constituting just under five percent of the total population. Of these, 1.44

million were working, accounting for approximately 5.2 percent of all people in employment. 10

If one broadens the definition of migrants to consider all those who were foreign born, i.e.

including foreign-born people with UK citizenship, the numbers are significantly higher.

According to the Labour Force Survey 2003/04, ten percent of the working-age population in

Britain was foreign-born. Of these, people born outside what is now the EU25 constitute the

biggest group of immigrants (seven percent of the working-age population), followed by

nationals of the EU15 member states (two percent).11 Of course, all these figures do not take

account of migrant workers who have entered and/or worked in the UK “illegally”.

As of May 2004 there were more than 80 different routes of entry for non-EEA

nationals12 to the UK, each governed by specific rules and regulations.13 Table 1 shows the

number of annual admissions for the most important channels of entry that are associated with

a limited or unlimited right to work in the UK’ s labour market.

Table 1: Major inflows of non-EEA nationals* with limited or unlimited right to work in the UK**,

2000-04

Thousands 2000 2001 2002 2003 2004 2000-04

Studentsa 313.0 339.0 369.0 319.0 294.0 1,634.0

Dependentsa 74.2 78.0 85.4 87.2 94.3 419.1

Work permit holdersa 67.1 81.1 85.6 81.4 82.7 397.9

Working holidaymakersa 38.4 35.8 41.7 46.5 62.4 224.8

Seasonal Agricultural Workersa 10.1 8.4 16.9 20.7 15.0 71.1

Au-pairsa 12.9 12.0 12.8 15.3 5.6 58.6

Domestic workersa 14.3 10.5 10.1 10.6 10.4 55.9

Sector-based Scheme workersb x x x 7.8 16.9 24.7

Highly Skilled Migrant Programmec x x 1.1 3.6 7.4 12.1

* The figures include EU10 nationals until May 2004, and exclude them afterwards. ** Immigration channels that are not associated with a right to work (such as ‘asylum seekers’ – 318.8 thousand during 2000-04) are excluded from Table 1. Sources: aHome Office (August 2005); bSalt and Millar (2006), cHSMP Services UK (http://www.hsmp-services.co.uk/)

10 Salt (2005) 11 Labour Force Survey December 2003 – February 2004. 12 The European Economic Area (EEA) includes the EU plus Norway, Iceland and Liechtenstein. 13 See Home Office (March 2006)

6

The government’s Managed Migration policies are based on the idea that, if managed

properly, immigration can generate significant economic benefits for the UK. As the UK’s

Home Secretary put it in the White Paper that signified a turning point in the country’s

approach:

Migration is an inevitable reality of the modern world and it brings significant benefits. But to ensure that we sustain the positive contribution of migration to our social well-being and economic prosperity, we need to manage it properly and build firmer foundations on which integration with diversity can be achieved.14

Under its Managed Migration policies, the Government has been relatively liberal with

regard to issuing work permits to employers who wish to recruit non-EEA migrants for

employment in skilled and highly skilled occupations. Not limited by a quota, the number of

work permits issued to skilled migrants increased from fewer than 30,000 in the mid 1990s to

an annual average of over 80,000 throughout 2001-04 (see the figure for “work permit

holders” in Table 1).15 In addition to the main work permit scheme for skilled migrants, the

Government also introduced the Highly Skilled Migrants Programme (HSMP) in 2002. This

points-based labour immigration programme aimed at attracting highly skilled migrants by

offering them the opportunity to move to the UK without having a prior job offer. Migrants

living and working in the UK on permits issued under the main work permit scheme or the

HSMP have the right to apply for permanent residence (“indefinite leave to remain”) after 5

years of residence in the UK.

In contrast, the UK’s pre-enlargement policies for the immigration and employment of

non-EU15 migrants in low-skilled occupations were relatively small in scale, sector-specific, and

much more restrictive in terms of the rights of migrants admitted than the policies toward

skilled labour immigration. The low-skilled programmes did not, for example, grant migrants

the right to family reunion or the right to permanent settlement in the UK. As of early 2004,

the main programmes for admitting migrants for low-skilled employment included:

• the “Seasonal Agricultural Worker Scheme” (SAWS) which admitted a limited number

of non-EU students for temporary employment in agriculture and food processing (the

quota was 25,000 in 2004);

• the “au-pair scheme” which is officially a cultural exchange scheme rather than a

labour immigration programme, allowing nationals of certain countries to help in

private households for a maximum of 25 hours per week;

14 Home Office (2002) cited in Spencer (2003). 15 For an overview of the UK’s main work permit system, see Clarke and Salt (2003).

7

• the domestic worker scheme, which is for domestic workers who travel to the UK

with their employers

• and the Sector Based Scheme (SBS) which allowed UK employers to recruit a limited

number of non-EEA workers for employment in selected low-skilled jobs in the

hospitality and food processing sectors (the quota was 20,000 in 2003/04).

Given the relatively small scale of the schemes above, students and working holiday-

makers constituted the main pool of non-EEA workers that could be legally employed in

medium or low-skilled occupations before EU enlargement. However, both types of

immigration status are associated with only a restricted right to work. Students –by far the

largest category of admission from outside the EEA in recent years16 (see Table 1) – are

allowed to legally work for a maximum of 20 hours per week during term time but full-time

during vacations. Under the Working Holidaymaker Scheme, Commonwealth citizens aged 17-

30 can visit the UK for an extended holiday of up to two years. During this period, working

holidaymakers are allowed to work for up to twelve months.

Some employers also filled their low-skilled vacancies by hiring migrants whose

employment may be described as “semi-compliant” or “non-compliant” with the UK’s

immigration laws.17 Semi-compliance indicates a situation where a migrant is legally resident

but working in violation of some or all of the conditions attached to the migrant’s immigration

status. Students or working holiday-makers working in excess of the hours legally allowed are

cases in point, as are non-EEA nationals admitted as au-pairs but taking up part-time hospitality

jobs. A recent study of East European migrants in low-wage employment in the UK concluded

that semi-compliance is likely to be a major feature in the UK’s migrant labour market in

relation to both students working excessive hours and au-pairs doing part-time work outside

their host families.18

“Non-compliant” migrants are those without valid leave to remain in the UK (i.e. those

“illegally resident”). The Home Office recently released estimates of the number of migrants

illegally resident in the UK in 2001.19 The estimates ranged from 310,000 at the lower end to

570,000 at the higher end, with a median estimate of 430,000 which is equivalent to about 0.7

percent of the UK population.20 Most illegally resident migrants are thought to be working in

16 Note that the figures for students in Table 1 include a significant number of English language students many of whom stay in the UK for a few weeks or months only. 17 Ruhs and Anderson (2006) 18 See Anderson et al. (2006) 19 See Woodbridge (2005). 20 Woodbridge (2005) discusses issues to do with estimating the number of “unauthorized” migrants in the UK. For an overview of “irregular” migration in the UK, see IPPR (2006).

8

low-wage jobs in agriculture and food processing, construction, the care sector, cleaning and in

hospitality.

Section 8 of the Asylum and Immigration Act 1996 (as amended by section 147 of the

Nationality, Immigration and Asylum Act 2002) makes it a criminal offence to employ an

individual over the age of 16 who does not have the entitlement to be in the UK or whose

status precludes them from undertaking the employment in question. However, possibly due

to the government’s emphasis on the “flexible” labour market (see below), enforcement

against employers who employ migrants illegally has traditionally been very low. Between

1998-2003, only 9 employers were successfully prosecuted for illegally employing migrants

under Section 8.21

Since coming to power in the late 1990s, the current government has considered the

promotion of a “flexible labour market with minimum standards” a core element of its overall

policies for providing “employment opportunities for all”, and especially for avoiding the

employment fluctuations resulting from the two severe recessions the UK economy faced in

the late 20th century.22 Labour market flexibility can be given various meanings but it generally

includes flexibility in: real wages; working practices (i.e. availability of part-time work and

flexible employment arrangements; and recruitment practices (e.g. a relative ease for

employers to hire and fire staff).23 International comparisons generally find that the UK’s

labour markets – and product markets – are more flexible than those of many other high-

income countries.24 In an effort to avoid labour market flexibility resulting in exploitation of

low-wage workers, the government introduced a minimum wage in 1998. A Low Pay

Commission was established to advise the government about the national minimum wage.25

2.2 EU enlargement: impact on labour immigration and labour immigration policies

Along with Ireland and Sweden, Britain was in a minority among the member states of the pre-

enlarged EU (EU15) to grant workers from the A8 countries free access to their labour

market immediately upon EU enlargement on 1st May 2004. Since that date “A8” workers have

been free to migrate and take up employment in the UK without requiring work permits. This

decision was clearly part of the Government’s strategy for migration management, expanding

migration to fill vacancies in skilled and especially in low-waged occupations, where employers

found it difficult to legally employ migrants before EU enlargement. For all those A8 workers

residing in the UK illegally, 1st May 2004 was, in effect, an amnesty.

21 See Home Office (June 2005a). 22 See HM Treasury and DWP (1997; and 2003). 23 For a comprehensive discussion and assessment of the flexibility of the UK’s labour market, see HM Treasury (2003). 24 See, for example, OECD (2002)

9

Inflows of A8 workers: Data from the Worker Registration Scheme (WRS)

In February 2004 a special “Workers Registration Scheme” (WRS) was put into place for A8

workers taking up employment in the UK after 1st May 2004. Unless officially exempted from

doing so, A8 workers are required to register their employment with the Home Office within

one month of taking up employment in the UK.26 To register, workers must pay a one-off fee

which in May 2004 was £50 (and has subsequently increased to £70). The WRS was not

intended to limit A8 nationals’ access to the labour market. Its stated policy objectives are to

control A8 workers’ access to certain welfare benefits and services (to be discussed in section

3.2 of this paper); to encourage participation in the formal economy; and to provide empirical

data to facilitate monitoring of inflows and the formulation of evidence based policy. Arguably,

the Worker Registration Scheme was a political concession to all those who were concerned

before EU enlargement about the prospect of A8 migrants ‘flooding’ Britain to claim benefits

rather than work.

The government publishes quarterly “Accession Monitoring Reports” with data

obtained from the registration of A8 nationals.27 According to the latest report28, there were

447,000 applications for registration between May 2004 and June 2006.29 As shown in Figure 2,

more than two years after EU enlargement, there is no sign yet of a significant decline in the

numbers of workers registering.

25 For its latest annual report, see Low Pay Commission (2006). 26 The groups exempted from the registration requirement include: self-employed people; those working legally in the UK for 12 months or more in the job they held on 1 May 2004; those working legally and remaining in the same job after 1 May 2004; those working and intending to work for less than one month with a particular employer; and au-pairs. 27 The reports are available at http://www.ind.homeoffice.gov.uk/ind/en/home/0/reports/accession_monitoring.html 28 Home Office (August 2006b) 29 Up to 30 percent of A8 workers who registered between May 2004 and September 2005 were from applicants who had already been in the UK before 1st May 2004. See Gilpin et al. (2006)

10

Figure 2: Quarterly numbers of East European migrants registering in the Worker Registration Scheme

(WRS)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Q22004

Q32004

Q42005

Q12005

Q22005

Q32005

Q42005

Q12006

Q22006

Source: Home Office (2006), Accession Monitoring Report May 2004 – June 2006

There has been significant debate about the extent to which the official registration data reflect

the number of A8 nationals coming to work in the UK in practice. It is clear, for example, that

the various exemptions from the registration requirements mean that the registration data

underestimate the inflow of A8 workers. The exemption of self-employed A8 nationals is

particularly important in this regard. Self-employment is known to be particularly prevalent in

the construction sector where a large number of A8 nationals are known to be working. The

Government has recently estimated that if self-employed A8 workers are taken into account,

the total figure may be closer to 600,000 rather than the 447,000 suggested by the WRS data.

This is still likely to be an underestimate as research has shown that some A8 workers fail to

register when they are required to do so.30

Whatever the true numbers, it is undisputed that the scale of labour immigration from

the new EU member states since May 2004 has been significantly larger than that predicted by

the government before EU enlargement. A study commissioned by the Home Office predicted

that EU enlargement would lead to an average annual net migration (i.e. inflows minus

outflows) of 5,000-13,000 A8 nationals for the period up to 2010.31 There are a number of

reasons to do with the methodological limitations of the study – many of which were explicitly

mentioned in the study itself – that help explain its gross underestimate. The key reason,

however, may have been the fact that, due to a lack of data on migration from A8 countries to

the UK, the predictions for post-enlargement immigration from the A8 countries were based

30 See Anderson et al. (2006)

11

on a model whose parameters had to be estimated using historical data for a different set of

countries. Another explanation for the gross underestimate of most official predictions was

the assumption that all 15 member states of the pre-enlarged EU would open their labour

markets to workers from the new EU member states at the same time. In the end, only three

countries granted A8 workers the unrestricted right to work in May 2004 (the UK, Ireland and

Sweden) creating significant ‘diversion effects’ in the post-enlargement migration flows of A8

workers.32

However incomplete and inadequate for reflecting the actual scale of inflows, the data

from the WRS are still very useful as they enable us to better understand the characteristics

and types of employment of A8 workers in the UK. The majority of workers who have

registered since May 2004 are Polish (62 percent), male (58 percent), young (82 percent aged

between 18-34) and without dependents in the UK (93 percent).33 They are employed across

all occupations but most are working in relatively low-skilled jobs. Table 2 shows the top five

occupations groups and occupations. Importantly, workers from the new EU member states

are employed throughout the UK and not just in London. According to the latest data, East

Anglia had the greatest number of workers registering during May 2004-June 2006 (15 percent

of the total), followed by London (14 percent) and the Midland regions (12 percent).

Table 2: Top five occupations groups and occupations of East European workers registered in the

Worker Registration Scheme (WRS) during May 2004 - June 2006.

Top five occupation groups Top five occupations

Admin., Business and Management 34 % Process operatives 37%

Hospitality and Catering 21 % Warehouse operatives 10%

Agriculture 12% Packers 9%

Manufacturing 7% Kitchen and catering assistants 9%

Food, fish and meat processing 5% Cleaner, domestic staff 8%

Source: Home Office (2006b), Accession Monitoring Report May 2004 – June 2006

31 Dustmann et al. (2003) 32 See the discussion in Tamas and Münz (2006). 33 Home Office (August 2006b)

12

A8 worker stocks: Data from the Labour Force Survey

It is important to emphasise that the figures from the Worker Registration Scheme are not a

measure of the stock of A8 workers in the UK. The registration data do not record how long

A8 workers stay and it is not known how many have already left the UK, as there is no

requirement for workers to de-register upon leaving. Although the existing data are insufficient

to assess the extent to which the recent inflows of East European workers will result in their

long-term immigration and/or permanent settlement in the UK, it is clear that a significant

number of A8 workers registering have been temporary migrants who came to do time-limited

(e.g. seasonal) jobs. At the same time, the share of long-term immigrants may not be as low as

commonly suggested.

Data taken from the UK’s labour force survey suggest that the stock of A8 migrants in

employment in the UK increased from about 43,000 in the spring of 2003 to 247,000 in the

spring of 2006 (see Table A3). The increase in the stock of employed A8 workers suggested by

these figures seems rather low compared to the flow data (estimated at around 600,000 since

May 2004) and, if true, would suggest a relatively high incidence of short-term stays in the UK

among A8 migrants. Nevertheless, although a significant share of the recent A8 immigration is

likely to be temporary and short-term, it is important to keep in mind that the labour force

figures for A8 workers are most likely underestimates due to well known problems with

undercounting and capturing minority groups in labour force surveys.34

Table 3: Estimates of A8 migrants aged 16+ and in employment, 2003-2006 (April-June)

A8 migrants A8 migrants A8 migrants’ share A8 migrants’ share

aged 16+ in employment in total migrant in total

(thousands) (thousands) employment employment

Apr-Jun 2003 118.4 43.2 1.7% 0.15%

Apr-Jun 2004 133.7 75.1 2.9% 0.27%

Apr-Jun 2005 222.3 150.3 5.4% 0.53%

Apr-Jun 2006 330.9 246.9 7.9% 0.87%

Source: Labour Force Survey, ONS

34 See ONS (2003)

13

Policy changes since EU enlargement

At the same time as opening the labour market to A8 workers, the government also introduced

measures to strengthen the enforcement of Section 8 of the Asylum and Immigration Act 1996.

On 1st May 2004, the Government introduced the Immigration (Restrictions on Employment)

Order 2004 which, among other things, revised the list of specified documents which may be

taken to provide evidence of entitlement to work. Although enforcement efforts in relation to

illegal migrant working increased – according to the Home Office the number of “successful

operations” increased from 390 in 2003 to 1,098 in 2004 – prosecution rates and fines imposed

on employers following section 8 convictions remained very low. In 2004-05, 21 employers were

successfully prosecuted for illegally employing migrants under Section 8 (compared to a total of 3

during 2001-03).35 More than half of section 8 convictions in 2004-05 resulted in fines of less than

£700, with four employers fined the maximum of £5,000.36

A second and more consequential policy change following EU enlargement was the

termination of the Sector Based Scheme for the hospitality sector. This decision came after a

review of the SBS which was published in June 2005.37 The two major reasons given for the

closure included: (i) the expectation that workers from the new EU member countries are now

able and willing to fill all vacancies in low-skill hospitality jobs, thus making the need for non-EEA

workers redundant; and (ii) concerns about misuse of the SBS in the hospitality sector. The

elements of – or potential for - misuse that the Home Office review of the SBS identified included,

for example, the selling of SBS permits in migrant workers’ countries of origin; the danger that

some SBS workers remain in the UK after their SBS permits expire; and the practices of some

third party agencies in facilitating entry into the UK under falsified pretences.

Following EU enlargement, the Government also launched a public consultation38 about

reforming the UK’s overall immigration system and in March 2006 gave details of a new “points-

system” framework for managing labour and other types of migration of non-EEA nationals to the

UK. 39 Among other things, the new points-based system aims to facilitate and simplify policies

regulating the immigration and employment of skilled and highly skilled non-EEA workers and to

strictly limit low-skilled immigration from outside the EEA. Any remaining low-skilled immigration

programmes would be “quota based, operator-led, and time-limited”. Again, the rationale

provided for restricting low-skilled immigration of non-EEA workers following EU enlargement is

that local employers should now be able to source all the workers required for low-skilled jobs

from within the enlarged EU.

35 Home Office (August 2006a) 36 See Home Office (June 2005a) 37 See Home Office (June 2005b) 38 See Home Office (July 2005)

14

Finally, the Government has recently announced that it will not allow nationals of Romania

and Bulgaria free access to the British labour market when their countries join the EU in January

2007.40 Romanians and Bulgarians will be free to travel to the UK but their employment will

continue to be regulated by the UK’s work permit system. Under this system, food processing and

agriculture will be the only sectors open to the legal employment of low-skilled workers from

Romania and Bulgaria (with a cap of 20,000 per year). There are, however, two major exceptions:

Romanians and Bulgarians will be allowed to legally work in the UK without a work permit if they

are self-employed or students working part-time (for a maximum of 20 hours per week during

term time, and full time during vacations). Critics point out – and the Government has admitted -

the significant challenge of enforcing these rules in practice. To encourage compliance, the

government has proposed to parliament the introduction of on-the-spot fines for migrants and

their employers who break the rules. The Government intends to annually review these

transitional arrangements for Romanian and Bulgarian migrants. According to the Home Secretary,

the opening of the UK labour market to Rumanian and Bulgarian workers will be “gradual” and

“take account of the needs of our labour market, the impact of the A10 expansion and the

positions adopted by other member states”.41

The reasons for the Government’s decision to continue to restrict the access of

Romanian and Bulgarian workers to the British labour market mainly stem from the significant and

larger-than-expected inflow of workers from the ten countries that joined the EU in 2004, and

from concerns that free access for Romanians and Bulgarians could further increase the inflow of

East European migrants. The Institute for Public Policy Research (IPPR), a leading left-leaning think-

tank, recently estimated that free access would result in an additional inflow of about 55,000

Romanian and Bulgarian migrants in the first year after the two countries join the EU. However,

others put the migration potential from Romania and Bulgaria much higher, mainly because the

average wage levels in Romania and Bulgaria are even lower than those prevailing in most of the

ten countries that became EU member states in 2004.

The Government has, this time, not made any predictions about the likely future

immigration flow from Rumania and Bulgaria but concerns about a further significant inflow of East

European labour appear to be widespread. The Conservatives, some Labour MPs and,

interestingly, even the Confederation of British Industry (CBI) have all argued against free labour

market access for Rumanians and Bulgarians when their countries join the EU in order to “pause

for reflection”.

39 See Home Office (March 2006) 40 See the Home Secretary’s statement to parliament on 24 October 2006, http://news.bbc.co.uk/1/hi/uk_politics/6081042.stm 41 Home Secretary’s statement to parliament on 24 October 2006

15

3 Economic impacts

This section reviews the available evidence on the economic impacts of recent labour

immigration in the UK. I first discuss effects on the economy and labour market, and then turn

to fiscal impacts and consequences for public services.

3.1 Impacts on the economy and labour market

For most of the past five years, economic growth rates in the UK have been consistently

higher than the EU average. Rising levels of immigration have contributed to that growth,

mainly by expanding total employment (see Figure 3). The extent of the contribution of

immigration to growth is, however, unclear.42 Mervyn King, the Governor of the Bank of

England, observed in a speech in 2005 that immigration benefited the UK economy by lowering

wage growth and inflation, and thereby keeping interest rates low.43 The Ernst & Young ITEM

club estimated that East European immigration kept interest rates half a percent lower than

they would otherwise have been.44

In theory, immigration can also have some negative effects on the overall economy.

For example, an important but so far unexplored research question is whether and to what

extent the increased supply of cheap labour in the UK has discouraged employers from

modernizing production processes and led to a situation where inefficient companies and

industries remain viable only because they are subsidized by a cheap immigrant workforce.45

42 Most international studies find that immigration generates only fairly modest economic benefits for the economy of the host country. See, for example, Smith and Edmonston (1997) for the US; and Productivity Commission (2006) for Australia. 43 King (2005) 44 Ernst & Young ITEM Club (2006) 45 Recent research by Lewis (2005, 2004) shows that the growth in less-skilled labour supply has slowed the adoption of automation technology in selected plants in US manufacturing. For another example, see Martin and Olmstead’s (1985) discussion of the mechanization controversy in US agriculture.

16

Figure 3: GDP growth, inflation (CPI) and employment since 2000 (quarterly figures)

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1

Quarters

Pere

cent

gro

wth

26,500

27,000

27,500

28,000

28,500

29,000

29,500

Thou

sand

s

GDP growth (annual %)

Inflation (CPI annual % growth)

employment (numbers)

Source: Office for National Statistics (ONS)

Migrant workers have also played an important role in helping meet skills and labour

shortages across a wide range of occupations at both the high and low skill end of the labour

market. However, because immigration has expanded the economy and the number of

workforce jobs overall, the total number of vacancies has not significantly declined since 2001,

remaining at around 600,000 (see Figure 4). The incidence of hard-to-fill vacancies has slightly

fallen recently, from 1.1 percent in 2004 to 0.9 percent in 2005. Vacancies persist throughout

the economy, but they are currently highest for elementary occupations, associate professional

occupations and sales and customer service occupations.46 Of course, it is important to keep in

mind that these aggregate figures for the overall economy could conceal potentially important

regional and sectoral differences.47

46 Learning and Skills Council (2006, 2005) 47 For example, in the hotels and restaurants sector the number of vacancies has fallen from 59 thousand in May 2004 to 47 thousand in June 2006, which is a more significant decline than that observed in the aggregate figures for the overall economy during that period (ONS).

17

Figure 4: Vacancies in the UK economy

0

200

400

600

800

2001Jun

2001Dec

2002Jun

2002Dec

2003Jun

2003Dec

2004Jun

2004Dec

2005Jun

2005Dec

2006Jun

Thou

sand

s

Source: ONS

The biggest beneficiaries from the increase in the availability of migrant labour have

undoubtedly been individual employers, especially those with a demand for low-waged labour.

Before EU enlargement employers had only very limited access to migrant labour that could be

legally employed in low-skilled jobs. Since EU enlargement, employers in the UK have had

access to an almost unlimited supply of East European migrants willing to take up employment

at or close to the minimum wage. Data from the Worker Registration Scheme suggest that

more than three quarters of the workers who registered since May 2004 were earning £4.50-

£5.99 per hour.48 During October 2004-05, the minimum wage was £4.85 for workers aged 22

or over, and £4.10 per hour for workers aged 18-21. The corresponding rates for October

2005-06 were £5.05 and £4.25, respectively.49

The findings of a recent research project that explored the employment experiences

of East European migrants working in low-skilled jobs in the UK50 suggest that, in addition to

working at low wages, A8 workers also tend to work longer basic hours and longer total

hours than average for their occupation. Furthermore, many of the more than 500 migrants

interviewed in the project were found to be significantly overqualified for the work they were

doing in the UK. For example, of 120 East European interviewees doing basic jobs in the UK’s

hospitality sector, more than half had post-secondary education and more than a third had

tertiary education.

Many of the East European migrants interviewed described their situation in terms of

trade-offs. Most suggested they tolerated low-skilled work and poor conditions because the

48 Home Office (August 2006b) 49 On 1st October 2006, the minimum wage increased to £5.35 for workers aged 22 or over, and £4.45 per hour for workers aged 18-21.See Low Pay Commission www.lowpay.gov.uk 50 Anderson et al. (2006). Sachdev and Harries (2006) discuss the learning and skills issues arising from the employment of many highly qualified migrants in low skilled jobs in the UK.

18

pay was significantly better than at home. But the trade-offs were not just economic; many

were motivated by the desire to learn English, or gain experience. Importantly, whatever the

motivation, East European migrants were typically prepared to put up with poor conditions

because the job was perceived as temporary. Most of the migrants interviewed had a clear

expectation to eventually move on to better jobs in or outside the UK.

The study also surveyed UK employers who valued and praised A8 migrants as “high-

quality workers” for low-skilled and low-waged work. Employers repeatedly compared the

“work ethic” and reliability of migrants to the negative attitudes of British workers. Employers

blamed their difficulties with recruiting British workers on long anti-social hours, high physical

demands, low status and low pay of the jobs they were offering.

Employers of A8 workers were clearly aware of the economic trade-offs that well-

qualified migrants were making by taking up low-waged employment in the UK. As one

construction employer interviewed in the study said: “I’ve had doctors … bit of a sad waste

really, doing laddering work because it paid better than being a doctor back home.”51

The question arises, then, whether the economic benefits that labour immigration has

generated for employers and the economy overall have come at the cost of reduced wage and

employment prospects for British workers. A recent assessment of the growth of earnings in

the UK labour market by the Office of National Statistics concluded that “the overall picture is

of steady earnings growth, though any underlying wage pressure in the economy remains

subdued”. 52 Earnings figures show a slight decline in the annual growth rate of earnings

including bonuses, which was down from 4.4 percent in the three months to April 2006 to 4.1

percent in the three months to May 2006.

Figure 5 shows that, following years of relatively steady decline, unemployment and the

claimant count (the number of people claiming Jobseeker’s Allowance) have risen since 2004.

The claimant count figure increased from 819,000 in February 2005 to 957,000 in July 2006.53

During the same period the number of unemployed workers rose from about 1.4 million to

almost 1.7 million. Analysis by the Office for National Statistics suggests that at least part of

the reason for the ongoing increase in unemployment is an increase in labour market

participation - the inactivity rate of the working-age population fell by about 0.5 percentage

points during Jan-Sep 2006, to 20.9 percent in Sep 2006 - rather than a slowdown in the labour

market.54

51 Anderson et al. (2006), p.70. 52 Lindsay (2006), p.247 53 In August 2007, the claimant count fell slightly to 950 thousand in August 2007. See ONS (Sep 2006) 54 Goodridge (Sep 2006)

19

Figure 5: Unemployment and claimant counts, 2000 - 2006Q2

800.0

900.0

1,000.0

1,100.0

1,200.0

1,300.0

1,400.0

1,500.0

1,600.0

1,700.0

1,800.0

2000Q1

2000Q3

2001Q1

2001Q3

2002Q1

2002Q3

2003Q1

2003Q3

2004Q1

2004Q3

2005Q1

2005Q3

2006Q1

Quarters

Thou

sand

s

4.0

4.2

4.4

4.6

4.8

5.0

5.2

5.4

5.6

5.8

6.0

Perc

ent

Claimant count(thousands)

Unemployment rate(percent)

Unemployment (thousands)

Source: ONS

Is there a link between immigration and the recent rise in unemployment? The

currently available research evidence does not offer a clear answer to this question. There has

so far only been one study of the impacts of the recent migration flows from the new EU

member states on the UK labour market.55 This study, carried out by a research team led by

the Department of Work and Pensions (DWP), used statistical analysis to explore the impact

of labour immigration of A8 workers, measured by the number of workers registered in the

Worker Registration Scheme, on the claimant count rate of citizens, i.e. on the proportion of

the working age population in receipt of Jobseeker’s Allowance. Using data up to November

2005, the DWP study found no statistically significant impact of the inflow of A8 workers on

claimant unemployment. The authors thus conclude that “the economic impact of migration

from the new EU member states has been modest, but broadly positive, reflecting the

flexibility and speed of adjustment of the UK labour market”.56

The conclusion of the DWP study is in line with the findings of an earlier, pre-

enlargement analysis of the local labour market impacts of immigration.57 Based on labour

force survey data, that earlier analysis concluded that immigration has no significant (long-run)

effects on regional unemployment levels or wage levels in the UK. The authors explained their

results by arguing that the long-run effects of immigration are reflected in a change in the

output mix – i.e. an increase in the production (or provision) of labour-intensive commodities

(or services), which leads to an increase in the demand for labour – rather than in a change in

55 See Gilpin et al. (2006). 56 Gilpin et al. (2006), p.1

20

wages or unemployment levels.58 The more recent DWP study has essentially given the same

explanation for its conclusion that immigration has only very minor and insignificant impacts on

the labour market. The argument that immigration has increased the demand for labour – as

well as increased its supply – is certainly in line with the economy-wide vacancy figures which

have so far shown no sign of a decline.

Since they constitute most of the systematic research evidence about the impacts of

immigration on the UK labour market to date, the conclusions of these two studies need to be

taken seriously. They certainly dispel the popular myth that labour immigration inevitably

harms native-born workers. However, it also needs to be acknowledged that studies of the

labour market impacts of immigration face a number of methodological difficulties and there is

still a debate in the international literature about the best methodological approach to the

analysis.59 For example, a key limitation of the DWP study stems from the poor quality of the

data used to measure the number of A8 workers. As discussed above, the number of workers

registering in the Worker Registration Scheme is a significant underestimate of the actual

number of East European migrants taking up employment in the UK since EU enlargement. The

two main reasons for this are the exemption of self-employed workers from registration

requirements and the failure of some workers from the new EU member states to register.

An important issue that has so far received relatively little attention is the impact of

increased immigration on immigrants (i.e. foreign-born persons) already in the UK. A very

recent study concluded that the main reason why existing studies of the impacts of

immigration on the wages of native-born workers failed to find any significant effects is that

natives and immigrants are imperfect substitutes. As a result, the study finds that the only

sizable effect of increased immigration is on the wages of those immigrants who are already in

the UK.60

Another issue that requires more attention from researchers is the impact of A8

immigration on activity rates, and especially on the labour market participation of certain

ethnic minority groups with low participation rates such women of Pakistani and Bangladeshi

origin. The current government is keen on increasing activity rates throughout the economy,

and especially among ethnic minorities whose rates lag behind those of other groups. It is

important to find out how the current immigration of A8 workers is affecting these efforts.

57 See Dustmann et al. (2005). 58 There are several ways in which the receiving country’s economy may adjust to immigration, including, for example, through a change in capital accumulation (investment), a change in production technology, a change in the output mix (i.e. in the mix of products produced or services provided) etc. 59 For a discussion of these difficulties and alternative approaches to the analysis, see, for example, Borjas (2003), Card (2005) and Dustmann et al. (2005). 60 Manacorda et al. (2006)

21

Given the paucity and limitations of existing research, the labour market impacts of

recent immigration flows remain contested. On the one hand, it is clear that the UK’s growing

economy and flexible labour market have done extremely well in absorbing a large number of

migrant workers over the past few years without the huge rises in unemployment or declines

in wage levels predicted before EU enlargement by parts of the tabloid press. On the other

hand, the continuing inflow of East European migrants and the recent increase in

unemployment suggest the possibility that the impact of immigration on the labour market may

not always be as insignificant as most of the existing studies suggest.

3.2 Impacts on public finances and public services

The fiscal impacts of labour immigration in the UK remain disputed. The three existing studies

of this issue were all carried out before EU enlargement and came up with different

conclusions. Carried out in 2002, the first analysis estimated that the overall net contribution

of immigrants (defined as foreign-born persons) was £2.5 billion in 1999/2000.61 A separate

study in 2004 argued that this estimate failed to take account of a number of important

additional items of expenditure, including the costs of administering immigration programmes.

Its revised estimate of the overall net fiscal contribution of immigrants in 1999/2000 was in the

range of £-0.4 – £2.6 billion.62 The most recent study of the fiscal impact of immigration

concluded that, in 2001-02, the average foreign-born person made a net contribution to the

fiscal balance of £331 (compared to £222 for UK-born persons).63

Any assessment of the fiscal impacts of immigration is, in the end, critically dependent

on the underlying methodology, especially on whether the fiscal accounting is static or

dynamic. The static approach calculates the fiscal contribution of immigrants as the difference

between the taxes they pay and the public expenditure they absorb in a given period (e.g. in a

certain year). In contrast, the dynamic approach considers the entire stream of future taxes

and expenditures associated with the immigrants and their descendants.64 All of the three UK

studies cited above were of the static type.

In theory, the fiscal impacts of labour immigration largely depend on migrants’ age,

their wages and their eligibility for and take-up of government benefits and public services.

Migrants with lower-than-average incomes tend to pay lower-than-average taxes and may also

be eligible for more government-funded services, especially if their families are with them.65 As

discussed earlier in the paper, the majority of A8 nationals taking up employment in the UK

61 Gott and Johnston (2002) 62 Coleman and Rowthorn (2004) 63 Sriskandarajah et al. (2005) 64 See the discussion in Coleman and Rowthorn (2004) 65 Martin (2006)

22

since EU enlargement have been employed in low-waged work, which suggests that they pay

lower-than-average taxes. At the same time, however, the great majority of A8 workers are

young and without dependents. Furthermore, A8 nationals’ access to means-tested benefits is

more restricted than that of other EU and British nationals.

Just before EU enlargement, the Government changed the law regulating access to

means-tested benefits, largely in response to concerns about nationals of the new EU member

states burdening the UK welfare system. The Social Security (Habitual Residence) Amendment

Regulations 200466 introduced a new requirement that a claimant must be able to demonstrate

a ‘right to reside’ in the UK, in addition to the habitual residency test67. Under the new rules,

A8 workers can only have a ‘right to reside’ (for benefit purposes) if they are working and

registered under the Workers’ Registration Scheme or if they have already completed a 12

month period of continuous and registered employment. During the first 12 month of

registered employment, A8 workers are entitled to Child Benefits and in-work benefits such as

tax credits. Those with a low income may also be entitled to Housing Benefit, Council Tax

Benefit and become eligible for assistance under the Homelessness legislation. A8 workers

who are not registered do not have access to any of these benefits. After 12 months of

registration, A8 workers gain the right to be treated the same way as other EU nationals.

The quarterly Accession Monitoring reports include information about A8 workers’

applications for national insurance numbers and employment-related and welfare benefits. The

latest figures suggest that 98.4 percent of National Insurance Numbers for A8 workers were

allocated for employment purposes. The numbers of A8 nationals applying for tax-funded,

income related benefits (including Jobseeker’s Allowance, Income Support and State Pension

Credit) have been low (5,943 applications since May 2004) and rejection rates have been high

(87 percent), mainly on the basis of the Habitual Residency Test and the Right to Reside

requirement. Applications for child benefits have been higher (44,995 since May 2004) and

rejection rates lower (18 percent).68 The government argues that these figures show that pre-

enlargement concerns about “welfare-shopping”, i.e. about A8 workers coming to the UK in

order to claim benefits rather than work, have been unfounded.

It has also been suggested that the Government’s decision to grant A8 workers free

access to the UK labour market since May 2004 has increased tax revenues by encouraging

East European workers who had been working illegally in the UK before May 2004 to register

and start paying taxes. This may be a likely but by no means certain effect. Recent research has

66 See ‘The Social Security (Habitual Residence) Amendment Regulations 2004’, available at http://www.opsi.gov.uk/si/si2004/20041232.htm 67 The term ‘habitually resident’ is not defined in legislation. The most important factors for habitual residence are generally the length, continuity and general nature of actual residence rather than intention. 68 Home Office (August 2006b)

23

shown that one cannot assume a straightforward relationship between immigration status and

informal working.69 Some illegally resident migrants do pay national insurance (e.g. by using an

expired or somebody else’s national insurance number). At the same time, legal residents

(including British workers) sometimes work in the informal economy without paying taxes.

Overall, the Government has argued that A8 workers are making few demands on the

UK’s welfare system. Although there is not any systematic evidence to refute this claim, there

have been recent concerns that the much larger than anticipated number of A8 workers

coming to the UK are beginning to make greater demands on public services including housing,

health care and schools than suggested by the Government. A recent study found that one in

seven people using London homelessness services are from Eastern Europe.70 The Local

Government Association recently wrote to the Home Secretary suggesting that local councils

do not get enough money to fund the services for A8 nationals because the official figures

underestimate the actual levels of immigration.71

Based on the available evidence reviewed above, it is clear that many of the economic

effects of the recent labour immigration from Eastern Europe remain poorly understood.

Although we can say with confidence that immigration has created some benefits for the

overall economy and individual employers, the impacts on wages and especially unemployment

are less clear. The recent rise in unemployment necessitates more research into whether and

to what extent this increase has been related to immigration. Similarly, although workers from

the new EU member states are clearly making an important contribution to the perceived

needs of the UK’s flexible labour market, relatively little is known about the employment

conditions of A8 workers in practice and the extent to which the increased competition for

low-waged jobs is driving down employment conditions at the low skill end of the labour

market. Finally, although the officially available figures do not suggest that A8 workers are

creating disproportionate costs for the UK’s welfare state, too little is known about the

impacts of immigration on public services to draw any firm conclusions.

69 Anderson et al. (2006) 70 Homeless Link (2006) 71 See http://news.bbc.co.uk/1/hi/uk_politics/5255038.stm

24

4 Current debates

This section briefly reviews the major themes in the current debate about A8 workers in the

UK.

4.1 Numbers and impacts

Unsurprisingly, much of the current debate about A8 workers in the UK has focused on their

high numbers and uncertain impacts on the UK economy and society. The Government has

been criticised for the gross inaccuracy of its pre-enlargement predictions about the likely

number of A8 migrants coming to the UK after May 2004; and for the apparent failure of the

currently available official data to adequately measure the true number of East European

migrants coming and working in the UK. There is now widespread agreement that better data

are needed urgently and the Government has promised major efforts to improve the quality

and accuracy of the official migration figures.

With regard to the economic impacts of recent labour immigration, the Government

maintains that labour immigration from the new EU member states has generated significant

economic benefits by filling vacancies that cannot be met by UK-born workers. The recent

rise in unemployment and complaints by local councils about a lack of money necessary for the

provision of public services for A8 workers have, however, opened up a debate about whether

the benefits for individual employers and the UK economy as a whole are generated at the

expense of local workers and the taxpayer. As the discussion in the previous section has

shown, there is, unfortunately, still very little research evidence on the labour market impacts

and fiscal effects of the recent labour immigration from Eastern and Central Europe. As a

result, the public debate on these issues is frequently based on anecdotes and opinion rather

than systematic evidence.

4.2 Temporary or permanent?

A key question that is emerging in current debates is whether East European migrants are

likely to be temporary migrants or permanent settlers. Until recently, the assumption was that

the vast majority of A8 workers would seek a temporary stay and employment in the UK. As

the numbers coming have remained high, this assumption is now being scrutinized more

carefully. The latest data from the Worker Registration Scheme suggest that almost half of the

workers who registered for employment since May 2004 have taken up temporary jobs. The

share of temporary employment is particularly high in agriculture (69 percent), and in

Administration, Business and Management (82 percent).72 The implications of these data for A8

72 Home Office (August 2006b)

25

nationals’ length of stay are unclear. In some cases temporary employment will imply a

temporary stay, especially in seasonal jobs in agriculture. In other cases migrants may simply

take up a succession of temporary jobs in the UK. This is likely to be the case, for example, for

migrants working for employment businesses73 which are included under the category of

Administration, Business and Management.

Although the majority of A8 migrants appear to be coming to the UK with the

intention of a temporary stay, there are some indications from interviews with migrants that

some workers’ intentions and expectations change over time resulting in a longer-term stay

than initially anticipated.74 Given that the differences between wages and unemployment rates

in the UK and the new EU member states are still significant (unemployment in Poland still

stands at 16 percent), the desirability of an early return migration may not seem as desirable as

some A8 migrants may have thought at the time of moving to the UK.

The duration of A10 workers’ employment and stay in the UK also raises important,

but so far little discussed, questions for the UK’s overall integration policies. All migrant

workers need at least a minimum of information and assistance to help them have a positive

experience in the UK. It is, however, also clear that migrants who settle permanently raise

different integration issues than those coming for a short time period only. East European

migrants have so far been almost completely missing from integration debates in the UK. This

is perhaps because of the common assumption that their stay is likely to be temporary and

short-term. Another reason may be the, in my view, mistaken assumption that because A8

migrants are white, they will inevitably not have any difficulties integrating in the UK economy

and society. Research from other immigration countries suggests that there is significant

diversity in different migrant groups’ experiences of upward mobility in the host country’s

labour market. While some migrants do get better jobs over time, others sometimes get stuck

in low-wage “poverty traps”. It is still too early to assess what share of A8 migrants in the UK

will stay long-term or permanently, and how well they will integrate in the UK, but it is clear

that one cannot simply assume the answers to these questions before exploring and discussing

them in a systematic fashion.

4.3 Immigration and the flexible labour market

The larger-than-anticipated inflow of A8 workers since EU enlargement, and their employment

in predominantly low-wage occupations, has highlighted the central role of the UK’s flexible

labour market in shaping both the numbers and impacts of migrant workers. Since the

Government can no longer control the admission of A8 nationals to the UK, the scale and skill

73 An employment business is a type of employment agency that employs workers directly but sends them out to work for other businesses on a temporary basis.

26

composition of the recent East European immigration has essentially been employer-led.

Employers’ demand for labour depends, in part, on labour costs which, in turn, depend on

wages and employment conditions offered. Clearly, the lower the wages and employment

conditions that employers can offer and migrants are willing to accept, the greater employer

demand for migrant labour will be. This point is well-illustrated by the experience of Sweden,

which has seen very limited inflows of East European migrants despite joining the UK and

Ireland in allowing A8 workers unrestricted access to the labour market since May 2004. One

of the reasons for this is the high level of regulation within Sweden’s labour market which

makes it almost impossible for employers to hire migrants at conditions that are different from

those collectively agreed - and effectively enforced - for all workers.

In Ireland, the large inflow of A8 workers has led to widespread agreement on the

need for effective enforcement of existing employment laws and regulations. The argument

made in the Irish case is that, in addition to helping protect the rights of all workers, improved

enforcement of minimum standards would also reduce employer demand for migrant labour

compared to what it would be in the absence of enforcement. Under the latest Social

Partnership Agreement, the number of labour inspectors will be tripled in Ireland.75

In the UK, the better enforcement of minimum labour standards has not yet featured

as a major theme in the current debate on immigration, perhaps because the flexible labour

market has been at the core of government policy and is often credited with being one of the

cornerstones of the recent success of the British economy. There are, however, signs that the

importance of enforcing minimum standards in a high-immigration environment is beginning to

be more widely recognized. For example, in its most recent annual report, the Low Pay

Commission recommended that the Government take action to prioritise targeted

enforcement of the minimum wage in those sectors that employ significant numbers of migrant

workers.76 This recommendation stems from growing concerns about some employers taking

advantage of the greatly increased supply of workers by offering migrants wages and

employment conditions that do not meet minimum standards.77 In a recent opinion piece on

illegal immigration in the UK, John Denham, the Head of the Home Affairs Select Committee

argued that “a drive to enforce all employment and tax laws across the tough bottom end of

the labour market will benefit millions of low-paid workers. It will also cut the financial

premium from illegal labour and reduce the pull on new migration.”78

74 Spencer et al. (2006, forthcoming) 75 See Department of the Taoiseach (2006) 76 Low Pay Commission (2006) 77 See, for example, Trades Union Congress (2005). 78 Denham (2006)

27

4.4 Reforming migration policies toward non-EEA nationals

A fifth key issue in the UK’s current immigration debate concerns the Government’s planned

reform of its overall policy framework for managing the immigration of non-EEA nationals. As

discussed earlier in this paper, the points-based system proposed by the Government in early

2006 would, for the foreseeable future, not admit any non-EEA nationals for the purpose of

filling low-skilled vacancies in the UK. This is because the Government expects employers to

fill, at least in the short to medium term, all of their low-skilled vacancies with worker from

the new member states. This position has recently been re-iterated when the Government

announced its decisions about continuing restrictions on the labour market access of Rumanian

and Bulgarian workers.79

Some employers in agriculture and the food processing sector have raised concerns

that this policy change may make it more difficult for them to recruit and especially to retain

workers. Although the new EU nationals are taking up employment in these sectors, some

employers have suggested that they find it difficult to retain East European workers, mainly

because as EU nationals they are now free to choose their employment in the UK and may

prefer to take up jobs in the hospitality sector rather than do hard work on farms. However,

given the current debates about high numbers and uncertain impacts of A8 workers, it is

questionable whether (and probably quite unlikely that) such concerns about continuing

retention difficulties after EU enlargement in 2004, and especially after the future enlargement

in 2007, will encourage the Government to create new guest worker programmes for

employing non-EU nationals in low-skilled jobs any time soon.

Some critics of the Government’s immigration policies argue that labour immigration

from outside the EU should be even further restricted. For example, Migration Watch, a

migration think tank and pressure group, has recently suggested that only highly-skilled

workers, defined as those earning more than £27,000 per year, from outside the EEA should

be allowed to settle permanently in the UK, with skilled non-EEA workers only admitted on a

strictly temporary basis.80 Others have gone further and called for quotas on non-EU migrants.

The Government has no plans for quotas although the Home Secretary has recently proposed

the establishment of an independent committee to “advise on the optimum level of

immigration”.81

79 See the Home Secretary’s statement to parliament on 24 October 2006, http://news.bbc.co.uk/1/hi/uk_politics/6081042.stm 80 Migration Watch (2006) 81 “Reid calls for migration debate”, see http://news.bbc.co.uk/1/hi/uk_politics/5250396.stm

28

5 Conclusion

The decision to grant nationals of the eight new EU member states in Central and Eastern

Europe (“A8 countries”) free access to the UK labour market in May 2004 was an integral part

of the Government’s Managed Migration policies. The rationale was to provide employers with

the migrant workers they said were needed to help fill more than 600,000 vacancies

throughout the economy, and especially in low-skilled occupations where the opportunities for

legally employing migrants had been limited before EU enlargement. To allay the fears of some

parties and part of the public about an imminent ‘flood’ of East European migrants coming to

claim benefits rather than work, the Government restricted A8 workers’ access to means-

tested benefits. It also introduced the Worker Registration Scheme, which requires most A8

migrants to register within a month of taking up employment in the UK. This requirement was

meant to help monitor the number of East European workers coming to work in the UK

following EU enlargement.

In the first two and a half years after EU enlargement, more than 600,000 A8 workers

came to work in the UK, significantly more than the Government predicted before May 2004.

This increase in labour immigration has undoubtedly contributed to economic growth and

benefited individual employers in the UK. It has, however, also raised new questions about the

distributional impacts and potential social costs of large-scale immigration. Although there is

currently no systematic evidence to link the recent rise in unemployment to the increase in

immigration, there is growing concern among the public that labour immigration from Eastern

Europe may reduce the employment and wage prospects of some British workers and increase

the tax burden for UK residents. Largely as a result of the current debates about these issues,

the Government recently announced that Romanian and Bulgarian workers will not be given

immediate free access to the UK labour market when their countries join the EU in 2007.

Given that Romanians and Bulgarians will be free to travel to the UK and legally work outside

the work permit system as self-employed persons or as students, it remains unclear, however,

how effective these restrictions will be in practice.

A key issue that has been coming to the fore only very slowly in recent debates about

labour immigration in the UK pertains to the importance of enforcing minimum employment

standards. A benign assessment of the role of the UK’s flexible labour market would suggest

that it has been of critical importance in helping the economy absorb a large number of

migrant workers without causing, it seems, significant unemployment among local workers. A

more realistic evaluation would add that, in a flexible labour market with weak mechanisms for

enforcing minimum standards, employers can easily develop an almost insatiable demand for

migrant workers, especially at the low skill end of the labour market. Without a stronger

29

commitment to the enforcement of labour laws, the immigration and employment of Central

and East European workers in the UK is in danger of becoming an example of the kind of

‘unmanaged’ migration that the Government is so keen to avoid.

30

References

Anderson, B., Ruhs, M., Rogaly, B. and S. Spencer (2006) “Fair enough? Central and

East European migrants in low-wage employment in the UK”, Report published by the Joseph

Rowntree Foundation (JRF), available at www.compas.ox.ac.uk/changingstatus

Borjas, G. (2003), “The Labour Demand Curve Is Downward Sloping: Reexamining the

Impact of Immigration on the Labour Market”, The Quarterly Journal of Economics 118(4): 1335-

1374.

Card, D. (2005) “Is the New Immigration Really so Bad?”, Economic Journal 115(507):

F300-F323

Clarke, J. and J. Salt (2003) “Work permits and foreign labour in the UK: a statistical

review”, in Labour Market Trends UK, November 2003, pp 563-574

Coleman, D. and Rowthorn, R. (2004), “The economic effects of immigration into the

United Kingdom”, Population and Development Review 30(4): 579-624

Denham (2006) “Immigrations’ real frontline”, Opinion piece in The Guardian, 26 July

2006

Department of the Taoiseach (2006) Towards 2016. Ten-year Framework Social

Partnership Agreement 2006-2015, Dublin, available at

http://www.taoiseach.gov.ie/attached_files/Towards2016PartnershipAgreement.pdf

Dustmann, C. and F. Fabbri (2005) “Immigrants in the British Labour Market”, Fiscal

Studies 26(4): 423-470

Dustmann, C., Fabbri, F. and Preston, I. (2005) “The impact of immigration on the

British Labour Market”, The Economic Journal 115(Nov): F324-F341

Dustmann, C., M. Casanova, I. Preston, M. Fertig and C. Schmidt (2003) “The impact

of EU enlargement on migration flows”, Home Office Online Report 25/03, London

Ernst & Young ITEM Club (2006), Spring Forecast 2006, www.ey.com

ESRC (2006), Globalisation, population mobility and impact of migration on population,

ESRC Seminar Series: Mapping the public policy landscape, Swindon

31

Gilpin, N., Henty, M., Lemos, S., Portes, J. and C. Bullen (2006): “The impact of free

movement of workers from Central and Eastern Europe on the UK labour market”,

Department of Work and Pensions Working Paper No. 29

Goodridge, P. (Sep 2006) “Labour Market analysis and summary. September 2005

assessment”, Economic Analysis Division, Office for National Statistics

Gott, C. and K. Johnston (2002) The Migrant Population in the UK: Fiscal Effects, Home

Office Occasional Paper 77, London

HM Treasury (2003) “EMU and labour market flexibility”, available at http://www.hm-

treasury.gov.uk/documents/taxation_work_and_welfare/

HM Treasury and DWP (2003) “Full employment in every region”, available at

http://www.hm-treasury.gov.uk/documents/taxation_work_and_welfare/

HM Treasury and DWP (1997) “The modernization of Britain’s tax and benefit system.

Number One. Employment Opportunity in a Changing Labour Market”, available at

http://www.hm-treasury.gov.uk/documents/taxation_work_and_welfare/

Homeless Link (2006) “A8 nationals in London homelessness services”, available at

www.homeless.org.uk

Home Office (August 2006a), Control of Immigration: Statistics 2005, Command Paper

Home Office (August 2006b), Accession Monitoring Report May 2004 – June 2006,

published 22 August 2006

Home Office (March 2006) A Points-Based System: Making Migration Work for Britain

Command paper 6741, Home Office, March 2006

Home Office (August 2005) Control of Immigration: United Kingdom Statistics 2004,

Presented to Parliament by the Secretary of State for the Home Department by Command of

Her Majesty

Home Office (July 2005) Selective admission: Making migration work for Britain,

Consultation document.

Home Office (June 2005a) Illegal Working taskforce Regulatory Impact Assessment from

Immigration, Asylum and nationality Bill, Published on 22 June 2005

32

Home Office (June 2005b) Sector-based Scheme Review, available at

www.homeoffice.gov.uk

Home Office (February 2002) Secure Borders, Safe Haven: Integration with Diversity in

Modern Britain, Presented to Parliament by the Secretary of State for the Home Department by

Command of Her Majesty, February 2002

Institute for Public Policy Research (2006) Irregular migration in the UK, an IPPR FactFile,

published in April 2006

Institute for Public Policy Research (2005) Selecting wisely: Making managed migration

work for Britain, IPPE submission to the Home Office consultation on ‘Selective admission:

Making migration work for Britain’, November 2005

King, M. (2005) Speech given at Salts Mill, Bradford, Yorkshire, 13 June 2005

Learning and Skills Council (2006) National Employers Skills Survey 2005, London

Learning and Skills Council (2005) National Employers Skills Survey 2004, London

Lewis, R. (2005) ‘Immigration, skill-mix, and the choice of technique’, Working Paper

No. 05-8, Federal Reserve Bank of Philadelphia, Philadelphia

Lewis, R. (2004) ‘How did the Miami labour market absorb the Mariel immigrants?’,

Working Paper No. 04-3, Federal Reserve Bank of Philadelphia, Philadelphia

Lindsay, C. (2006) “July 2006 Assessment”, Labour Market Trends, August 2006,

pp243-248, Office for National Statistics

Low Pay Commission (2006) “National Minimum Wage. Low Pay Commission Report

2006”, available at http://www.lowpay.gov.uk/

Manacorda, M., Manning, A. and J. Wadsworth (2006) The Impact of Immigration on

the Structure of Male Wages: Theory and evidence from Britain”, IZA Discussion paper No.

235, available at www.iza.org

Martin, P. (2006) “Economic Effects of Migration”, in Managing Migration in Ireland: A

Social and Economic Analysis, National Economic and Social Council (NESC), Dublin

Martin, P. and A. Olmstead (1985) ‘The Agricultural Mechanization Controversy’,

Science 227: 601406.

33

Migration Watch (2006) “Briefing Paper 3.2: Employment”, available at

http://www.migrationwatchuk.org/

OECD (2002) “And the Twain Shall Meet: Cross Market Effects of Labour and Product

Market Policies”, in Employment Outlook 2002, Paris: OECD

Office for National Statistics (September 2006) ‘Labour Market Overview – September

2006’, available at www.ons.gov.uk

Office for National Statistics (2003) “Labour Force Survey User Guide – Volume 1:

Background and Methodology”, available at www.ons.gov.uk

Productivity Commission Australia (2006) ‘Economic impacts of migration and

population growth’, Productivity Commission Research Report, 24 April 2006, Melbourne

Ruhs, M. and B. Anderson (2006) “Semi-compliance in the migrant labour market”,

COMPAS Working Paper No.30, June 2006, available at www.compas.ox.ac.uk

Salt, J. (2005) “Migration matters”, Prospect Magazine, Issue 110

Salt, J. and J. Millar (2006) “Foreign labour in the United Kingdom: current patterns and

trends”, Labour Market Trends, October 2006, Office for National Statistics (ONS), London

Sachdev, D. and B. Harries (2006) “Learning and skills planning and provision for

migrants from the accession states”, Learning and Skills Council, London

Smith, J. and Edmonston, B. (ed.) (1997) The New Americans, National Academy Press,

Washington DC.

Spencer, S. et al (2006, forthcoming) “Experiences of East European migrants in the

UK” (working title), a report prepared for the Joseph Rowntree Foundation (JRF), see

www.compas.ox.ac.uk/changingstatus

Spencer, S. ed. (2003) The Politics of Migration, Blackwell Publishing, Oxford.

Sriskandarajah, D., Cooley, L. and H. Reed (2005) Paying their way. The fiscal contribution

of immigrants in the UK, Institute for Public Policy Research (IPPR), London

Tamas, K. and R. Münz (2006) Labour Migrants Unbound? EU Enlargement, Transitional

Measures and Labour Market Effects, Institute for Future Studies, Stockholm

34

Trades Unions Congress (2005) “Below the minimum: Agency workers and the

minimum wage”, TUC, London

Woodbridge, J. (2005) Sizing the unauthorised (illegal) migrant population in the United

Kingdom in 2001, Home Office Online Report 29/05